SEC Filing | RAPT Therapeutics, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38997

RAPT Therapeutics, Inc.

(Exact name of registrant as specified in its charter)


Delaware		47-3313701
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
561 Eccles Avenue, South San Francisco, California		94080
(Address of principal executive offices)		(Zip Code)

(650) 489-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common Stock $0.0001 par value per share

    RAPT

    Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 3, 2024, there were 34,903,476 shares of the registrant’s common stock outstanding.

RAPT THERAPEUTICS, INC.

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three-Months Ended March 31, 2024 and 2023	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three-Months Ended March 31, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2024 and 2023	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	63
Item 6.	Exhibits	64
Signatures

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	March 31,			December 31,
	2024			2023
Assets
Current assets:
Cash and cash equivalents	$	45,317		$	47,478
Marketable securities		96,262			111,384
Prepaid expenses and other current assets		6,781			2,920
Total current assets		148,360			161,782
Property and equipment, net		2,239			2,448
Operating lease right-of-use assets		4,772			5,228
Other assets		447			3,871
Total assets	$	155,818		$	173,329
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	6,771		$	5,176
Accrued expenses		11,807			14,103
Operating lease liabilities, current		2,508			2,448
Other current liabilities		82			109
Total current liabilities		21,168			21,836
Operating lease liabilities, non-current		3,815			4,458
Total liabilities		24,983			26,294
Commitments and contingencies
Stockholders' equity:
Preferred stock		—			—
Common stock		3			3
Additional paid-in capital		646,045			631,611
Accumulated other comprehensive gain (loss)		(10	)		103
Accumulated deficit		(515,203	)		(484,682	)
Total stockholders' equity		130,835			147,035
Total liabilities and stockholders' equity	$	155,818		$	173,329

See accompanying notes to condensed consolidated financial statements.

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended
	March 31,
	2024			2023
Operating expenses:
Research and development		24,781			25,574
General and administrative		7,737			5,988
Total operating expenses		32,518			31,562
Loss from operations		(32,518	)		(31,562	)
Other income, net		1,997			2,291
Net loss	$	(30,521	)	$	(29,271	)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		(113	)		365
Total comprehensive loss	$	(30,634	)	$	(28,906	)
Net loss per share, basic and diluted	$	(0.79	)	$	(0.76	)
Weighted average number of shares used in computing net loss per share, basic and diluted		38,625,365			38,280,539

See accompanying notes to condensed consolidated financial statements.

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)


							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at December 31, 2023		34,398,312	$	3	$	631,611	$	103		$	(484,682	)	$	147,035
Issuances of common stock under employee stock plans		36,074		—		67		—			—			67
Issuances of common stock in “at-the-market” offerings, net of issuance costs		365,316		—		8,969		—			—			8,969
Stock-based compensation		—		—		5,398		—			—			5,398
Unrealized loss on marketable securities		—		—		—		(113	)		—			(113	)
Net loss		—		—		—		—			(30,521	)		(30,521	)
Balance at March 31, 2024		34,799,702	$	3	$	646,045	$	(10	)	$	(515,203	)	$	130,835


							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2022		34,254,314	$	3	$	613,073	$	(26	)	$	(367,884	)	$	245,166
Issuances of common stock under employee stock plans		35,417		—		116		—			—			116
Stock-based compensation		—		—		4,094		—			—			4,094
Unrealized gain on marketable securities		—		—		—		365			—			365
Net loss		—		—		—		—			(29,271	)		(29,271	)
Balance at March 31, 2023		34,289,731	$	3	$	617,283	$	339		$	(397,155	)	$	220,470

See accompanying notes to condensed consolidated financial statements.

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2024			2023
Operating activities
Net loss	$	(30,521	)	$	(29,271	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discounts on marketable securities		(983	)		(1,441	)
Depreciation and amortization		314			299
Stock-based compensation expense		5,398			4,094
Non-cash operating lease expense		584			584
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(437	)		490
Accounts payable, accrued expenses and other current liabilities		(728	)		7,277
Operating lease liabilities		(711	)		(634	)
Net cash used in operating activities		(27,084	)		(18,602	)
Investing activities
Purchase of marketable securities		(16,814	)		(37,878	)
Proceeds from maturities of marketable securities		32,806			63,945
Purchase of property and equipment		(105	)		(759	)
Net cash provided by investing activities		15,887			25,308
Financing activities
Proceeds from issuances of common stock in “at-the-market” offerings, net of issuance costs		8,969			—
Proceeds from issuance of common stock under employee stock plans		67			116
Net cash provided by financing activities		9,036			116
Net (decrease) increase in cash and cash equivalents		(2,161	)		6,822
Cash and cash equivalents at beginning of period		47,478			38,946
Cash and cash equivalents at end of period	$	45,317		$	45,768

See accompanying notes to condensed consolidated financial statements.

RAPT THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Description of the Business

RAPT Therapeutics, Inc. (“RAPT” or the “Company”) is a clinical stage, immunology-based therapeutics company focused on discovering, developing and commercializing oral small molecule therapies for patients with significant unmet needs in inflammatory diseases and oncology. Utilizing its proprietary drug discovery and development engine, the Company develops highly selective small molecules that are designed to modulate the critical immune responses underlying these diseases. The Company is located in South San Francisco, California.

Liquidity and Management Plans

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has incurred net losses and negative cash flows from operations. During the quarter ended March 31, 2024, the Company incurred a net loss of $30.5 million and used $27.2 million of cash in operations and capital expenditures. At March 31, 2024, the Company had cash and cash equivalents and marketable securities of $141.6 million and working capital of $127.2 million.

The Company plans to continue to incur substantial costs in order to conduct research and development activities, and additional capital will be needed to undertake these activities. The Company intends to raise such capital through the issuance of additional equity, borrowings or strategic alliances with other companies. However, if such arrangements are not available at adequate levels or on acceptable terms, the Company would be required to significantly reduce operating expenses and delay or reduce the scope of or eliminate some of its development programs. The Company believes that its current cash and cash equivalents and marketable securities will provide sufficient funds to enable it to meet its obligations for at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

The Company’s evaluation was based on the facts known as of the date of filing of this Quarterly Report on Form 10-Q, including the impacts of the clinical holds that the U.S. Food and Drug Administration (“FDA”) has placed on the Phase 2b trial of zelnecirnon in atopic dermatitis (“AD”) and the Phase 2a trial of zelnecirnon in asthma and the Company's decision to close and unblind both trials to support its discussions with the FDA.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of Regulation S‑X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023 filed on March 7, 2024 with the Securities and Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the consolidated accounts of the Company and its wholly owned subsidiary, RAPT Therapeutics Australia Pty Ltd., which was established in 2018 and deregistered during the quarter ended June 30, 2023. All intercompany balances and transactions have been eliminated in consolidation.

Stock-Based Compensation

The Company determines employee, nonemployee and director stock-based compensation expense for all stock-based awards based on their grant date fair value using the Black-Scholes option-pricing model. For stock-based awards with service conditions only, stock-based compensation expense is recognized over the requisite service period using the straight-line method. Forfeitures are recognized as they occur.

The fair value of restricted stock awards granted is determined based on the stock price on the date of grant. The estimated fair value is amortized as compensation expense over the service period of the award.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per common share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the number of potential dilutive securities outstanding during the period calculated in accordance with the treasury stock method. Diluted net loss per share is the same as basic net loss per share since the effect of potentially dilutive securities is anti-dilutive.

Marketable Securities

Marketable securities primarily consist of commercial paper, corporate debt securities and U.S. government agency securities. The Company has classified its marketable securities as available-for-sale and may sell these securities prior to their stated maturities. The Company views these marketable securities as available to support current operations and classifies marketable securities with maturities beyond 12 months as current assets. The Company’s marketable securities are carried at estimated fair value, which is derived from independent pricing sources based on quoted prices in active markets for similar securities. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss). The cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in other income, net on the condensed consolidated statements of operations.

All of the Company's available-for-sale investments are subject to a periodic impairment review. For each available-for-sale investment whose fair value is below its amortized cost, the Company determines if the impairment is a result of a credit-related loss or other factors using both quantitative and qualitative factors, including the length of time and extent to which the market value has been less than amortized cost, the financial condition and near-term prospects of the issuer and the Company’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If the impairment is a result of a credit-related loss, the Company recognizes an allowance for credit losses. If the impairment is not a result of a credit loss, the Company recognizes the loss in other comprehensive loss.

Leases

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or financing leases. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s condensed consolidated balance sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an implicit rate when readily available, or its incremental borrowing rate based on the information available at lease commencement date, in determining the present value of lease payments. ROU assets represent our right to use underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. Lease agreements with both lease and nonlease components are generally accounted for together as a single lease component.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) (No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”), which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The Company believes the adoption of this standard will not have a material impact on its consolidated financial statement disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU No. 2023-09”), which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation and modifies other income tax-related disclosures. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the income tax disclosures within the consolidated financial statements.

3. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, marketable securities, accounts payable and accrued expenses that approximate fair value due to their relatively short maturities.

Assets and liabilities recorded at fair value on a recurring basis in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company estimates the fair values of investments in corporate debt securities, commercial paper and U.S. government agency securities using valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

Cash equivalents and marketable securities, all of which are classified as available-for-sale securities and measured at fair value on a recurring basis, consisted of the following (in thousands):


		As of March 31, 2024
	Fair Value Hierarchy Level	Amortized Cost			Unrealized Gains		Unrealized Losses			Fair Value
Financial assets:
Money market funds	Level 1	$	10,337		$	—	$	—		$	10,337
Corporate debt	Level 2		18,795			15		(9	)		18,801
Asset-backed securities	Level 2		4,772			1		(2	)		4,771
Commercial paper	Level 2		55,661			2		(5	)		55,658
U.S. government agency securities	Level 2		52,024			17		(29	)		52,012
Subtotal			141,589			35		(45	)		141,579
Less: Cash equivalents			(45,317	)		—		—			(45,317	)
Marketable securities		$	96,272		$	35	$	(45	)	$	96,262


		As of December 31, 2023
	Fair Value Hierarchy Level	Amortized Cost			Unrealized Gains		Unrealized Losses			Fair Value

Financial assets:
Money market funds	Level 1	$	10,869		$	—	$	—		$	10,869
Corporate debt	Level 2		19,531			37		(9	)		19,559
Asset-backed securities	Level 2		5,242			7		(4	)		5,245
Commercial paper	Level 2		59,828			7		(8	)		59,827
U.S. government agency securities	Level 2		63,206			91		(18	)		63,279
Subtotal			158,676			142		(39	)		158,779
Less: Cash equivalents			(47,395	)		—		—			(47,395	)
Marketable securities		$	111,281		$	142	$	(39	)	$	111,384

As of March 31, 2024, the unrealized losses on the Company’s securities that were in an unrealized loss position were caused by interest rate changes and were not attributable to credit losses. As of March 31, 2024, the Company held debt securities with an aggregate unrealized loss position of $45,000 that had an aggregate fair value of $44.3 million. The Company does not intend to sell the securities that are in an unrealized loss position and the Company believes it is more likely than not that the investments will be held until recovery of the amortized cost bases. The Company did not record an allowance for credit losses or other impairment charges related to its marketable securities as of March 31, 2024.

The following table presents the remaining contractual maturities of the Company’s marketable securities as of March 31, 2024 (in thousands):


	March 31, 2024
Maturing in one year or less	$	88,717
Maturing after one year through five years		7,545
Total	$	96,262

4. Property and Equipment

Property and equipment consisted of the following (in thousands):


	March 31,			December 31,
	2024			2023
Laboratory equipment	$	7,484		$	7,399
Leasehold improvements		3,295			3,295
Computer equipment		745			727
Furniture and fixtures		394			394
Total property and equipment		11,918			11,815
Less accumulated depreciation and amortization		(9,679	)		(9,367	)
Property and equipment, net	$	2,239		$	2,448

Depreciation and amortization expense was $0.3 million for each of the three months ended March 31, 2024 and 2023.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	March 31,		December 31,
	2024		2023
Accrued research and development expenses	$	7,141	$	7,281
Accrued compensation		3,932		6,303
Accrued professional and consulting services		531		341
Other		203		178
Total accrued expenses	$	11,807	$	14,103

6. Common Stock

As of March 31, 2024, the Company had reserved the following shares of common stock for future issuance:


Options issued and outstanding under the 2019 Equity Incentive Plan and 2015 Stock Plan			5,484,490
Shares available for future grants under the 2019 Equity Incentive Plan			3,009,835
Pre-funded warrants issued and outstanding			4,000,000
Shares reserved under the 2019 Employee Stock Purchase Plan			650,858
Total			13,145,183

On August 11, 2023, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on August 17, 2023, related to the sale and issuance of up to $450 million of the Company’s securities, including up to $150 million of shares of common stock that may be offered and sold from time to time in one or more “at-the-market” offerings pursuant to a Controlled Equity OfferingSM Sales Agreement (the “ATM Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) and Leerink Partners LLC. The ATM Sales Agreement replaced the Controlled Equity OfferingSM Sales Agreement dated November 4, 2020 by and among the Company, Cantor and Stifel, Nicolaus & Company, Incorporated (the “Prior ATM Sales Agreement”). During the three months ended March 31, 2024, the Company sold 365,316 shares of common stock in “at-the-market” offerings pursuant to the ATM Sales Agreement for net proceeds of $9.0 million, after deducting commissions and other offering related costs. No shares were sold under the Prior ATM Sales Agreement during the three months ended March 31, 2023. As of March 31, 2024, $140.6 million remained available under the ATM Sales Agreement.

7. Stock-Based Compensation

Stock option activity under the 2019 Equity Incentive Plan (the “2019 Plan”) is set forth below for the three months ended March 31, 2024:


				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price Per		Term		Value
	Outstanding			Share		(Years)		(in thousands)
Balances at December 31, 2023		4,099,947		$	21.00		7.6	$	23,206
Stock options granted		1,426,119			24.41
Stock options exercised		(14,374	)		4.67
Stock options forfeited		(27,202	)		23.25
Balances at March 31, 2024		5,484,490		$	21.92		8.0	$	1,289

As of March 31, 2024, 3,009,835 shares remained available for issuance under the 2019 Plan.

Restricted stock unit (“RSU”) activity under the 2019 Plan is set forth below for the three months ended March 31, 2024:


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
	Outstanding			Per Share
Balances at December 31, 2023		13,500		$	44.66
RSUs granted		—			—
RSUs vested and settled		(13,500	)		44.66
RSUs forfeited		—			—
Balances at March 31, 2024		—		$	—

Stock-based compensation expense

Total stock-based compensation expense recognized for options and RSUs granted to both employees and non-employees and for the 2019 Employee Stock Purchase Plan (the “2019 ESPP”) was as follows (in thousands):


	For the Three Months Ended March 31,
	2024		2023
Research and development	$	2,637	$	1,960
General and administrative		2,761		2,134
Total stock-based compensation expense	$	5,398	$	4,094

As of March 31, 2024, unrecognized stock-based compensation expense related to outstanding unvested stock options and RSUs that are expected to vest was $51.6 million. This unrecognized stock-based compensation expense is expected to be recognized over 3.1 years.

The Company recorded stock-based compensation expense related to the 2019 ESPP of $0.3 million for each of the three months ended March 31, 2024 and 2023.

8. Net Loss Per Share

Net loss per share

The following table sets forth the computation of the basic and diluted net loss per share for the three months ended March 31, 2024 and 2023 (in thousands, except share and per share data):


	Three Months Ended March 31,
	2024			2023
Numerator:
Net loss	$	(30,521	)	$	(29,271	)
Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted		38,625,365			38,280,539
Net loss per share, basic and diluted	$	(0.79	)	$	(0.76	)

For the three months ended March 31, 2024 and 2023, 4,000,000 pre-funded warrants to purchase the Company’s shares of common stock, issued in the May 2022 private placement financing, were included on a weighted average basis in the basic and diluted net loss per share calculation. As of March 31, 2024, all the pre-funded warrants issued in the private placement financing were outstanding.

Potential dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:


	As of March 31,
	2024		2023
Stock options issued and outstanding under the 2019 Plan and 2015 Stock Plan		5,484,490		3,786,831
Estimated shares issuable under the 2019 ESPP		61,848		46,101
RSUs subject to future vesting		—		13,500
Total		5,546,338		3,846,432

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2024. This discussion includes forward-looking statements based upon current beliefs, plans and expectations that involve risk, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results may differ materially from management’s expectations as a result of various factors, including, but not limited to, those discussed in the section titled “Risk Factors” in this report. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “may,” “plans,” “potential” “predicts,” “projects,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise any forward-looking statements to reflect new information or future events, even if new information comes available in the future. You should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.

Overview

We are a clinical stage immunology-based therapeutics company focused on discovering, developing and commercializing oral small molecule therapies for patients with significant unmet needs in inflammatory diseases and oncology. Utilizing our proprietary drug discovery and development engine, we are developing highly selective small molecules designed to modulate the critical immune responses underlying these diseases. Our two lead drug candidates, zelnecirnon (RPT193) and tivumecirnon (FLX475), each target C-C motif chemokine receptor 4 (“CCR4”), a drug target that potentially has broad applicability in inflammatory diseases and oncology.

In February 2024, the U.S. Food and Drug Administration (“FDA”) placed clinical holds on both our Phase 2b trial of zelnecirnon in atopic dermatitis (“AD”) and our Phase 2a trial of zelnecirnon in asthma. The clinical hold determination was based on a serious adverse event of liver failure requiring transplant in one patient in the AD trial. Dosing of zelnecirnon and enrollment of new trial participants were halted immediately in both clinical trials. In May 2024, we announced our decision to close and unblind both the Phase 2b trial in AD and the Phase 2a trial in asthma to inform our path forward and support our discussions with the FDA. Prior to the imposition of the clinical hold, a total of 229 patients had been enrolled in the Phase 2b AD trial, of which approximately 110 had completed the 16-week dosing period.

In April 2024, we announced safety and efficacy data from our ongoing Phase 2 trial of tivumecirnon in combination with the anti-PD-1 checkpoint inhibitor (“CPI”) pembrolizumab in the cohort of patients with advanced head and neck squamous cell carcinoma (“HNSCC”) whose disease progressed despite previous treatment with CPI therapy (“CPI-experienced”). The 32-patient CPI-experienced HNSCC cohort had heavily pretreated disease, with 69% of patients having received three or more (up to six) prior lines of treatment. In the entire cohort, confirmed responses were observed in 5/32 patients (15.6%) regardless of PD-L1 or HPV status. In the 23 patients known to have PD-L1+ disease (CPS ≥1), an ORR of 17.4% (4/23) was observed, and in the 18 patients known to have HPV+ disease, an ORR of 22.2% (4/18) was observed.

Financial Overview

Since commencing operations in 2015, we have devoted substantially all of our efforts and financial resources to building our research and development capabilities and establishing our corporate infrastructure. As a result, we have incurred net losses since inception. As of March 31, 2024, we had an accumulated deficit of $515.2 million. We have incurred net losses of $30.5 million and $29.3 million for the three months ended March 31, 2024 and 2023, respectively. We do not expect to generate product revenue unless and until we obtain approval for the commercialization of a drug candidate and we cannot assure you that we will ever generate significant product revenue or profits.

Since inception, we have financed our operations primarily through the sale of equity securities. As of March 31, 2024, we had cash and cash equivalents and marketable securities of $141.6 million and working capital of $127.2 million. On August 11, 2023, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on August 17, 2023, related to the sale and issuance of up to $450 million of the Company’s securities, including up to $150 million of shares of common stock that may be offered and sold from time to time in one or more “at-the-market” offerings pursuant to a Controlled Equity OfferingSM Sales Agreement (the “ATM Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) and Leerink Partners LLC. The ATM Sales Agreement replaced the Controlled Equity OfferingSM Sales Agreement, dated November 4, 2020, by and among the Company, Cantor and Stifel, Nicolaus & Company, Incorporated. During the three months ended March 31, 2024, the Company sold 365,316 shares of common stock in “at-the-market” offerings pursuant to the ATM Sales Agreement, for net proceeds of $9.0 million, after deducting commissions and other offering related costs. As of March 31, 2024, there were up to $140.6 million of shares of common stock available for future issuance under the ATM Sales Agreement. We believe our current cash and cash equivalents and marketable securities will be sufficient to fund our planned operations for a period of at least 12 months following the filing date of this Quarterly Report on Form 10-Q.

We expect to incur substantial expenditures in the foreseeable future as we expand our pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if our drug candidates are approved, launch commercial activities. Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing and planned clinical trials, including efforts to resolve the clinical holds on the Phase 2b trial of zelnecirnon in AD and the Phase 2a trial in asthma, the development and validation of our manufacturing processes and other development activities.

We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until we can generate significant revenue from sales of our drug candidates, if ever, we expect to finance our operations through equity or debt financings or other capital sources, including potential collaborations with other companies, or other strategic transactions. Adequate funding may not be available to us on acceptable terms or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties rights to develop or commercialize our drug candidates.

Components of Operating Results

Research and Development Expenses

We expense both internal and external research and development costs as such expenses are incurred. We track the external research and development costs incurred for each of our drug candidates. However, we do not track our internal research and development costs by drug candidate as the related efforts and their costs are typically spread across multiple drug candidates.

We account for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made.

Clinical trial costs are a component of research and development expenses. We expense costs for our clinical trial activities performed by third parties, including clinical research organizations (“CROs”) and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with the associated agreements. We use information received from our personnel and outside service providers to estimate the clinical trial costs incurred.

External research and development expenses consist primarily of costs incurred for the development of our drug candidates and include:

•

costs incurred under agreements with CROs, investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies;

•

costs to acquire, develop and manufacture supplies for clinical trials and other studies, including fees paid to contract manufacturing organizations (“CMOs”); and

•

costs related to compliance with drug development regulatory requirements.

Internal research and development costs include:

•

salaries and related costs, including stock-based compensation and travel expenses, for personnel in our research and development functions; and

•

depreciation and other allocated facility-related and overhead expenses.

Although we expect our research and development expenses to decrease in the near term due to the clinical holds that have been placed on the zelnecirnon clinical trials described above, we expect to devote substantial resources towards research and development during the next few years as we seek to complete existing and initiate additional clinical trials, pursue regulatory approval of zelnecirnon and tivumecirnon and advance other programs into clinical development. Predicting the timing or the final cost to complete our clinical program or validation of our manufacturing and supply processes is difficult and delays may occur because of many factors.

General and Administrative Expenses

General and administrative expenses consist principally of personnel-related costs, including payroll and stock‑based compensation for personnel in executive, finance, human resources, business and corporate development and other administrative functions; professional fees for legal, consulting and accounting services; rent and other facilities costs; depreciation and other general operating expenses not otherwise classified as research and development expenses.

We expect to continue to incur expenses to support our continued operations as a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq Global Market, insurance expenses, investor relations expenses, audit fees, professional services and general overhead and administrative costs.

Other Income, Net

Our cash and cash equivalents and marketable securities are invested in money market funds, corporate debt securities, commercial paper and U.S. government agency securities. Other income, net, consists primarily of interest earned on our cash and cash equivalents and marketable securities and remeasurement gains and losses on foreign currency transactions.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2024, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024. Our significant accounting policies are also described in “Summary of Significant Accounting Policies” in Note 2 of the accompanying condensed consolidated financial statements.

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table summarizes our results of operations for the periods indicated (in thousands):


	Three Months Ended
	March 31,
	2024			2023			$ Change			% Change
Operating expenses:
Research and development		24,781			25,574			(793	)		(3	)%
General and administrative		7,737			5,988			1,749			29	%
Total operating expenses		32,518			31,562			956			3	%
Loss from operations		(32,518	)		(31,562	)		(956	)		3	%
Other income, net		1,997			2,291			(294	)		(13	)%
Net loss	$	(30,521	)	$	(29,271	)	$	(1,250	)		4	%

Research and Development Expenses

Research and development expenses decreased $0.8 million, or 3%, to $24.8 million for the three months ended March 31, 2024, from $25.6 million for the three months ended March 31, 2023. The decrease in research and development expenses was primarily due to decreases of $1.3 million in development costs related to zelnecirnon, $1.3 million in development costs related to tivumecirnon, $0.7 million in development costs related to early-stage programs and $0.5 million in lab supplies costs, partially offset by increases of $1.8 million in personnel costs, $0.3 million in consulting costs, $0.2 million in facilities costs and $0.7 million in stock-based compensation expense.

The following is a comparison of research and development expenses for the three months ended March 31, 2024 and 2023 (in thousands):


	Three Months Ended
	March 31,
	2024		2023
External development expenses:
Zelnecirnon (formerly RPT193)	$	7,841	$	9,091
Tivumecirnon (formerly FLX475)		2,157		3,510
Other programs		203		938
Internal research and development expenses		14,580		12,035
Total research and development expenses	$	24,781	$	25,574

As previously noted, we do not track our internal research and development expenses by drug candidate, as the related efforts and their costs are typically spread across multiple drug candidates.

General and Administrative Expenses

General and administrative expenses increased $1.7 million, or 29%, to $7.7 million for the three months ended March 31, 2024, from $6.0 million for the three months ended March 31, 2023. The increase in general and administrative expenses was primarily due to increases of $0.6 million in personnel costs, $0.6 million in stock-based compensation expense, $0.4 million in consulting costs and $0.1 million in facilities costs.

Other Income, Net

Other income, net decreased $0.3 million, or 13%, to $2.0 million for the three months ended March 31, 2024, from $2.3 million for the three months ended March 31, 2023. The decrease was driven primarily by a decrease in interest income due to lower invested cash balances for the three months ended March 31, 2024.

Liquidity and Capital Resources; Plan of Operations

Since inception, we have financed our operations primarily through the sale of equity securities. During the three months ended March 31, 2024, we sold 365,316 shares of common stock in “at-the-market” offerings pursuant to the ATM Sales Agreement, for net

proceeds of $9.0 million, after deducting commissions and other offering related costs. As of March 31, 2024, up to $140.6 million of shares of common stock were available for future issuance under the ATM Sales Agreement. As of March 31, 2024, we had cash and cash equivalents and marketable securities of $141.6 million and working capital of $127.2 million. Our cash equivalents and marketable securities consist of commercial paper, corporate debt securities and U.S. government agency securities. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view towards liquidity and capital preservation. Since inception, we have incurred net losses and negative cash flows from operations.

As of March 31, 2024, we had an accumulated deficit of $515.2 million. We expect to incur substantial costs in order to conduct research and development activities necessary to develop and commercialize our existing and future drug candidates. Additional capital will be needed to undertake these activities and we intend to raise such capital through the issuance of additional equity or debt, strategic alliances with other companies or other sources of financing. However, if such capital is not available at adequate levels or on acceptable terms, we could be required to significantly reduce operating expenses and delay or reduce the scope of, or eliminate, some of our research or development programs. We believe our current cash and cash equivalents and marketable securities will be sufficient to fund our anticipated level of operations through at least the next 12 months following the filing date of this report.

We will continue to require additional capital to develop our drug candidates and fund operations for the foreseeable future. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with other companies or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:

•

the scope, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our drug candidates;

•

the number and scope of clinical programs we decide to pursue;

•

the scope and costs of manufacturing development and commercial manufacturing activities;

•

the extent to which we acquire or in-license other drug candidates and technologies;

•

the cost, timing and outcome of regulatory review of our drug candidates;

•

the cost and timing of establishing sales and marketing capabilities, if any of our drug candidates receive marketing approval;

•

the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•

our ability to establish and maintain collaborations on favorable terms, if at all;

•

our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our drug candidates;

•

the costs associated with being a public company; and

•

the cost associated with commercializing our drug candidates, if they receive marketing approval.

Additionally, the global financial markets have experienced significant disruptions due to various macroeconomic factors, including, among other things, the impact of ongoing overseas conflicts, resulting in a general global economic slowdown. Furthermore, inflation rates, particularly in the United States and the United Kingdom, have increased to levels not seen in decades. In addition, the U.S. Federal Reserve has raised, and may further raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. Moreover, the failures of Silicon Valley Bank, Signature Bank and First Republic Bank have resulted in broader financial institution liquidity risk and concerns. If other banks and financial institutions fail or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash, cash equivalents and investments may be threatened and our ability to raise additional capital could be substantially impaired. If the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our ability to pursue our business strategy. See “Risk Factors” for additional risks associated with our substantial capital requirements.

If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any equity or debt financing may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to other parties rights to develop or commercialize our drug candidates that we would prefer to retain.

Summary Condensed Consolidated Statement of Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):


	Three Months Ended
	March 31,
	2024			2023
Net cash (used in) provided by:
Operating activities	$	(27,084	)	$	(18,602	)
Investing activities		15,887			25,308
Financing activities		9,036			116
Net (decrease) increase in cash and cash equivalents	$	(2,161	)	$	6,822

Cash Used in Operating Activities

Net cash used in operating activities was $27.1 million for the three months ended March 31, 2024, reflecting a net loss of $30.5 million and changes in operating assets and liabilities of $1.9 million, partially offset by non-cash charges primarily for depreciation, amortization, non-cash operating lease expense and stock-based compensation expense totaling $5.3 million. The $8.5 million increase in cash used in operating activities for the quarter ended March 31, 2024, as compared to the quarter ended March 31, 2023, was primarily due to a $9.0 million net change in net operating assets and liabilities and a $1.3 million increase in our net loss, partially offset by a $0.5 million decrease in accretion of discount on marketable securities and a $1.3 million increase in stock-based compensation expense.

Net cash used in operating activities was $18.6 million for the three months ended March 31, 2023, reflecting a net loss of $29.3 million, partially offset by non-cash charges primarily for depreciation, amortization, non-cash operating lease expense and stock-based compensation expense totaling $3.5 million and net cash provided by changes in operating assets and liabilities of $7.2 million.

Cash Provided by Investing Activities

Cash provided by investing activities was $15.9 million for the three months ended March 31, 2024, primarily from the proceeds from maturities of marketable securities of $32.8 million, partially offset by the purchases of marketable securities of $16.8 million and purchase of property and equipment for $0.1 million. Cash provided by investing activities was $25.3 million for the three months ended March 31, 2023, primarily from the proceeds from maturities of marketable securities of $63.9 million, partially offset by the purchases of marketable securities of $37.8 million and purchase of property and equipment for $0.8 million.

Cash Provided by Financing Activities

Net cash provided by financing activities was $9.0 million for the three months ended March 31, 2024, consisting of net proceeds from the sale of shares under the ATM Sales Agreement. Net cash provided by financing activities was $0.1 million for the three months ended March 31, 2023 from exercises of stock options under our employee stock plans.

Material Cash Requirements

Our cash requirements in the ordinary course of business have not materially changed from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Material Cash Requirements” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 7, 2024 with the SEC.

Emerging Growth Company Status and Smaller Reporting Company Status

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to elect the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We may take advantage of these provisions until December 31, 2024.

In addition, we are also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2024, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management determined that, as of March 31, 2024, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A. Risk Factors

Our business and investing in our common stock involve a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our other public filings. The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition, results of operations, prospects and stock price. In such a case, the market price of our common stock could decline and you may lose all or part of your original investment. This Quarterly Report on Form 10-Q also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.

Summary of Risk Factors

The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition, results of operations, prospects and stock price. Some of these risks are:

•

Our Phase 2 clinical trials of zelnecirnon are on clinical hold and, if the FDA does not lift the holds, we may be unable to continue clinical development of zelnecirnon.

•

Our current or future product candidates may fail or suffer delays in clinical development that materially and adversely affect their commercial viability.

•

We are a clinical stage therapeutics company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

•

We may not be successful in our efforts to use and expand our proprietary drug discovery and development engine to build a pipeline of drug candidates, and as an organization we have no history of successfully developing drugs.

•

Even if regulatory approval is obtained for zelnecirnon, tivumecirnon or any other potential drug candidate, the drug candidate we commercialize may not achieve market acceptance and we may not generate any revenue from the sale or licensing of our drug candidates.

•

Undesirable side effects caused by zelnecirnon, tivumecirnon or any other potential drug candidate could cause regulatory authorities to interrupt, delay or halt clinical trials and could result in the delay or denial of regulatory approval by the FDA or other regulatory authorities, which could compromise our ability to market and derive revenue from our drug candidates. For example, the clinical holds placed on our Phase 2b trial of zelnecirnon in AD and our Phase 2a trial of zelnecirnon in asthma were based on a serious adverse event of liver failure requiring transplant in one patient in the AD trial. In May 2024, we announced our decision to close and unblind both studies to support our discussions with the FDA. However, we may be unable to establish causation of the serious adverse event or satisfactorily address the issues required to resolve the clinical holds in a timely manner or at all and we expect to incur additional expenses in connection with our efforts to resolve the clinical holds.

•

We will need substantial additional funds to advance development of drug candidates and our drug discovery and development engine, and we cannot guarantee that we will have sufficient funds available in the future to develop and commercialize our current or potential future drug candidates. For example, our efforts to address the clinical holds and advance zelnecirnon may result in significant additional expenses.

•

Because we may rely on third parties for manufacturing and supply of our drug candidates, some of which are sole source vendors, our supply may become limited or interrupted or may not be of satisfactory quantity or quality.

•

If third parties on which we rely to conduct certain preclinical studies and clinical trials do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be delayed with material and adverse impacts on our business and financial condition.

•

We face intense competition from companies that have developed or may develop biologics and small molecule drugs for the treatment of inflammatory diseases and cancer. If these companies develop technologies or drug candidates more rapidly than we do, or if their technologies or drug candidates are more effective, our ability to develop and successfully commercialize drug candidates may be adversely affected.

•

If any of our drug candidates is approved for marketing and commercialization in the future and we are unable to develop sales, marketing and distribution capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, we will be unable to successfully commercialize any such future products.

•

Our business could be materially and adversely affected in the future by effects of disease outbreaks, epidemics and pandemics.

•

If we are unable to obtain, maintain, enforce or defend intellectual property rights related to our technology and current or future drug candidates, or if our intellectual property rights are inadequate, we may not be able to compete effectively.

•

Our stock price may be volatile. Raising additional capital and other future issuances of our common stock or rights to purchase common stock could result in additional dilution and could cause our stock price to fall.

•

Our principal stockholders and management own a significant percentage of our stock and are able to exert significant control over matters subject to stockholder approval.

•

Failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, standards and other obligations related to data privacy and security (including security incidents) could harm our business. Compliance or the actual or perceived failure to comply with such obligations could increase the costs of our products, limit their use or adoption and otherwise negatively affect our operating results and business.

Risks Related to Our Business

Our Phase 2 clinical trials of zelnecirnon are on clinical hold and, if the FDA does not lift the holds, we may be unable to continue clinical development of zelnecirnon. Our current or future product candidates may fail or suffer delays in clinical development that materially and adversely affect their commercial viability.

In February 2024, the FDA placed clinical holds on both our Phase 2b trial of zelnecirnon in AD and our Phase 2a trial of zelnecirnon in asthma. The clinical hold determination was based on a serious adverse event of liver failure requiring transplant in one patient in the AD trial. Dosing of zelnecirnon and enrollment of new trial participants were halted immediately in both clinical trials. In May 2024, we announced our decision to close and unblind both the Phase 2b trial in AD and the Phase 2a trial of zelnecirnon in asthma to inform our path forward and support our discussions with the FDA. We may be unable to establish causation of the serious adverse event or satisfactorily address the issues required to resolve the clinical holds in a timely manner or at all, and we expect to incur additional expenses in connection with our efforts to resolve the clinical holds, which may be significant. If the FDA does not lift the clinical holds, we may be unable to continue clinical development of zelnecirnon, which would have a material adverse effect on our business, financial position and prospects.

We have no products on the market or that have gained regulatory approval. Other than zelnecirnon and tivumecirnon, none of our drug candidates has ever been tested in humans. None of our drug candidates has advanced into late-stage development or a pivotal clinical trial and it may be years before any such trial is initiated, if at all. Our ability to achieve and sustain profitability depends on us developing, obtaining regulatory approval for and successfully commercializing one or more drug candidates, either alone or with partners.

Before obtaining regulatory approval for any of our drug candidates, we must conduct extensive preclinical studies and clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. As noted above, the FDA has placed both our clinical trials of zelnecirnon on clinical hold following a serious adverse event of liver failure requiring transplant, and we may be unable to demonstrate the safety of zelnecirnon to the FDA’s satisfaction. With respect to tivumecirnon, although we have successfully completed preclinical studies and a Phase 1 clinical trial with healthy volunteers, and are conducting a Phase 1/2 clinical trial investigating tivumecirnon as a single agent and in combination with pembrolizumab in a range of tumors, more clinical trials are needed. There is no guarantee that the FDA will lift the clinical holds on the Phase 2 clinical trials of zelnecirnon or permit us to conduct additional clinical trials for zelnecirnon, tivumecirnon or any other potential drug candidates. Further, we cannot be certain of the timely completion or outcome of any of our clinical trials and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs, or if the outcome of any preclinical studies or clinical trials will ultimately support the further development of zelnecirnon, tivumecirnon or any other potential drug candidates.

Our clinical development efforts are subject to the risks of failure inherent in the development of drug candidates based on novel approaches, targets and mechanisms of action. Although zelnecirnon has shown activity in several preclinical models and in the placebo-controlled Phase 1b portion of the Phase 1a/1b trial in a small number of patients with AD, there is no guarantee that the data from our Phase 2b trial in patients with AD or our Phase 2a trial in patients with asthma, or from any future clinical trials if we are permitted by the FDA to continue the clinical development of zelnecirnon, will show benefit to patients. Additionally, while tivumecirnon is currently in a Phase 1/2 clinical trial and has shown activity in a small number of patients with non-small cell lung cancer, there is no guarantee that tivumecirnon will ultimately prove to benefit patients. In the ongoing Phase 1/2 clinical trial of tivumecirnon, drug responses have been observed in a small number of patients. It is possible that no further responses will be observed in other patients or that the observed responses in patients who received tivumecirnon and pembrolizumab were caused solely by the pembrolizumab administered to the patient and not by tivumecirnon, or that the responses were spontaneous and unrelated to either tivumecirnon or pembrolizumab. We have discontinued, and may elect in the future to discontinue, development of tivumecirnon in certain indications if, among other reasons, data does not warrant moving forward. For example, in 2022, we made the decision not to move forward with development of tivumecirnon in nasopharyngeal cancer and checkpoint-naïve head and neck squamous cell carcinoma. Additionally, we may be unable to enroll the trial or complete the dosing interval due to the impact of unexpected world events. There can be no assurance that the intended effects of our drug candidates will be observed or avoided, as the case may be, in clinical trials or that the drug candidate will offer any significant clinical benefit to humans. Results in preclinical studies do not necessarily predict the results of clinical studies. Additionally, even though our drug candidates are designed to address the same indications as existing drugs and therapies, we have not conducted head-to-head clinical trials comparing our drug candidates with such existing drugs and therapies. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by clinical and preclinical stage therapeutics companies such as ours.

Tivumecirnon is currently undergoing clinical development and testing as a single agent and in combination with pembrolizumab (supplied by Merck under our existing collaboration agreement). Were Merck to terminate our collaboration agreement, we would be required to purchase pembrolizumab to continue our current and planned clinical trials or to introduce another anti-PD-1 therapy for co-administration with tivumecirnon in place of pembrolizumab, which may require us to restart preclinical studies or clinical trials. This could result in a change to our business plan and materially harm our business, financial condition, or results of operations and prospects. In addition, if tivumecirnon is approved as a treatment in combination with pembrolizumab, then the future availability of pembrolizumab for administration with tivumecirnon would affect our ability to commercialize tivumecirnon. For example, if the supply of pembrolizumab were constrained for any reason it could have the effect of limiting the commercial uptake of tivumecirnon, if approved for commercial sale.

We may not have the financial resources to continue development of, or to enter into new collaborations or partnerships for our existing or any potential future drug candidates. Our position may be exacerbated if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, a drug candidate, such as :

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the clinical holds that have been placed on our Phase 2b trial of zelnecirnon in AD and our Phase 2a trial of zelnecirnon in asthma;

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negative or inconclusive results from our clinical trials or the clinical trials of others for drug candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon a program;

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product-related side effects experienced by participants in our clinical trials or by individuals using drugs or therapeutics similar to ours;

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delays in submitting Investigational New Drug Applications (“INDs”) or comparable foreign applications, or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

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conditions imposed by the FDA, or other regulatory authorities, regarding the scope or design of our clinical trials;

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suspension or termination of our clinical trials for various reasons, including a clinical hold based on a finding that our drug candidates have undesirable side effects or other unexpected characteristics, or that the participants are being exposed to unacceptable health risks, such as the clinical hold described above;

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delays in enrolling research subjects in clinical trials;

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high drop-out rates of research subjects;

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inadequate supply or quality of drug candidate components or materials or other supplies necessary for the conduct of our clinical trials;

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greater-than-anticipated clinical trial costs;

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poor effectiveness of our drug candidates during clinical trials;

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unfavorable FDA or other regulatory agency inspections and review of a clinical trial or manufacturing site;

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failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

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delays and changes in regulatory requirements, policies and guidelines; or

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the FDA’s or other regulatory agencies’ data interpretation.

Further, we and our potential future partners may never receive approval to market and commercialize any drug candidate. Even if we or a potential future partner obtain regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as we intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or a potential future partner may be subject to post-marketing testing requirements to maintain regulatory approval.

We are a clinical stage therapeutics company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability, which could result in a decline in the market value of our common stock.

Since our inception, we have devoted substantially all of our resources to research and development, including our drug discovery and development engine, preclinical studies and clinical trials; raising capital; building our management team; and developing and maintaining our intellectual property portfolio. Our net loss was $30.5 million and $29.3 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $515.2 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. Furthermore, we do not expect to generate any revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies, clinical trials and the regulatory approval process for our current and potential future drug candidates.

We expect to continue incurring net losses as we make efforts to advance the clinical development of our lead drug candidates, zelnecirnon and tivumecirnon. However, the amount of our future losses is uncertain. Our ability to generate revenue from product sales and achieve or sustain profitability, if ever, will depend on, among other things, successfully developing drug candidates, obtaining regulatory approvals to market and commercialize drug candidates, manufacturing any approved products on commercially reasonable terms, entering into any future collaborations or other partnerships, establishing a sales and marketing organization or suitable third-party alternatives for any approved product and raising sufficient capital to finance our operations. If we, or any of our future partners, are unable to develop and commercialize one or more of our drug candidates, or if sales revenue from any drug candidate that receives regulatory approval is insufficient, we will not achieve or sustain profitability, which would have a material and adverse effect on our business, financial condition, results of operations and prospects.

Zelnecirnon, tivumecirnon or other future drug candidates may not demonstrate the safety and efficacy necessary to support further clinical development or commercial viability. Further, success in research and preclinical studies or early clinical trial results may not be indicative of results obtained in later trials. Likewise, preliminary, initial or interim data from clinical trials may be materially different from final data.

We have completed a Phase 1a/1b trial of zelnecirnon in healthy volunteers and in patients with AD. We were previously conducting a Phase 2b trial of zelnecirnon in patients with AD and a Phase 2a trial in asthma. However, in February 2024, the FDA placed clinical holds on those studies based on a serious adverse event of liver failure requiring transplant in one patient in the AD trial. Dosing of zelnecirnon and enrollment of new trial participants were halted immediately in both clinical trials. In May 2024, we announced our decision to close and unblind both trials to inform our path forward and support our discussions with the FDA. We may be unable to establish causation of the serious adverse event or satisfactorily address the issues required to resolve the clinical holds in a timely manner or at all and we expect to incur additional expenses in connection with our efforts to resolve the clinical holds. If the FDA does not lift the clinical holds, we may be unable to continue clinical development of zelnecirnon.

In addition, we have completed a Phase 1 clinical trial with healthy volunteers for tivumecirnon. We are conducting a Phase 1/2 clinical trial investigating tivumecirnon as a single agent and in combination with pembrolizumab. We may ultimately discover that neither zelnecirnon nor tivumecirnon meet criteria to be determined to be therapeutically effective or safe. As a result, we may never succeed in developing a marketable product based on zelnecirnon or tivumecirnon. If zelnecirnon, tivumecirnon or any of our potential future drug candidates prove to be ineffective, unsafe or commercially unviable, our entire pipeline could have little, if any, value, which could require us to change our focus and approach to small molecule discovery and development, which would have a material and adverse effect on our business, financial condition, results of operations and prospects.

Additionally, results from research and preclinical studies or early clinical trials are not necessarily predictive of future clinical trial results, and preliminary, initial and interim results of a clinical trial are not necessarily indicative of final results. From time to time, we have and may in the future publish or report preliminary, initial or interim data. Preliminary, initial or interim data from our clinical trials and those of our collaborators may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and/or more patient data become available. In this regard, such data may show initial evidence of clinical benefit but, as patients continue to be followed and more patient data becomes available, there is a risk that any therapeutic effects will not be durable in patients and/or will decrease over time, or cease entirely. Preliminary, initial or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from such preliminary, initial or interim data. As a result, preliminary, initial or interim data should be considered carefully and with caution until the final data are available.

In addition, there is a high failure rate for product candidates proceeding through clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. Any such setbacks could adversely affect our business, financial condition, results of operations and prospects.

A key element of our strategy is to use and expand our proprietary drug discovery and development engine to build a pipeline of potential drug candidates and advance these drug candidates through preclinical studies and clinical development for the treatment of various diseases. As an organization, we have never developed a drug candidate through to commercialization nor have we ever conducted a pivotal clinical trial. Although our research and development efforts to date have resulted in our identification and development of zelnecirnon, tivumecirnon and other potential future drug candidates, neither our proprietary drug discovery and development engine nor our organization has a track record of success. Our current drug candidates may not be safe or effective therapeutics and we may not be able to develop any successful drug candidates. Our proprietary drug discovery and development engine is evolving and may not reach a state at which building a pipeline of drug candidates is possible. Even if we are successful in building our pipeline of drug candidates, the potential drug candidates that we identify may not be suitable for clinical development or generate acceptable clinical data, including unacceptable toxicity or other characteristics that indicate that the drug candidates are unlikely to be products that will receive marketing approval from the FDA or other regulatory authorities or achieve market acceptance. Even if the drug candidates we identify are suitable for clinical development, our lack of experience as an organization at developing drugs may cause us to fail in successfully developing the drug candidate through to commercialization. If we do not successfully develop and commercialize drug candidates, we will not be able to generate product revenue in the future.

Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics for our drug candidates could harm our drug development strategy and operational results.

As one of the elements of our clinical development approach, we may seek to screen and identify subsets of patients who are more likely to benefit from our drug candidates. To achieve this, we may seek to develop and commercialize companion diagnostics by us or by third-party collaborators. Companion diagnostics are sometimes developed in conjunction with clinical programs for an associated product. The approval of a companion diagnostic as part of the product label would limit the use of the drug candidate to those patients who are more likely to benefit from our drug candidate.

Companion diagnostics are subject to regulation by the FDA and other regulatory authorities as medical devices and require separate clearance or approval prior to their commercialization. To date, the FDA has required premarket approval of all companion diagnostics for oncology therapies. We may encounter difficulties in developing and obtaining approval for these companion diagnostics. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval of a companion diagnostic could delay or prevent approval of our related drug candidates. The time and cost associated with developing a companion diagnostic may not prove to have been necessary in order to successfully market the product.

The market may not be receptive to our current or potential future drug candidates, and we may not generate any revenue from the sale or licensing of our drug candidates.

Even if regulatory approval is obtained for a drug candidate, including zelnecirnon or tivumecirnon, we may not generate or sustain revenue from sales of such products. Market acceptance of our current and potential future drug candidates will depend on, among other factors:

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the timing of our receipt of any marketing and commercialization approvals;

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the terms of any approvals and the countries in which approvals are obtained;

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the safety and efficacy of our drug candidates;

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the prevalence and severity of any adverse side effects associated with our drug candidates;

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limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;

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relative convenience and ease of administration of our drug candidates;

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the extent to which physicians recommend our products to their patients;

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the availability of coverage and adequate government and third-party payor reimbursement;

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the pricing of our products, particularly as compared to alternative treatments; and

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the availability of alternative effective treatments for the disease indications our drug candidates are intended to treat and the relative risks, benefits and costs of those treatments.

If any drug candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition, results of operations and prospects.

We may not be successful in our efforts to expand indications for approved drug candidates.

Part of our drug development strategy is to clinically test and seek regulatory approval for our drug candidates in indications in which we believe there is the most evidence that we will be able to quickly generate proof of concept data. We then intend to expand clinical testing and seek regulatory approvals in other indications within oncology and inflammatory diseases. Conducting clinical trials for additional indications for our drug candidates requires substantial technical, financial and human resources and is prone to the risks of failure inherent in drug development. We cannot provide you any assurance that we will be successful in our effort to obtain regulatory approval for our drug candidates for additional indications even if we obtain approval for an initial indication.

If we or others later identify undesirable side effects caused by zelnecirnon or tivumecirnon, our ability to market and derive revenue from the drug candidate could be compromised.

Undesirable side effects caused by zelnecirnon, tivumecirnon or any other potential future drug candidate could cause regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. For example, in February 2024, the FDA placed clinical holds on both our Phase 2b trial of zelnecirnon in AD and our Phase 2a trial of zelnecirnon in asthma based on a serious adverse event of liver failure requiring transplant in one patient in the AD trial. Dosing of zelnecirnon and enrollment of new trial participants were halted immediately in both clinical trials. In May 2024, we announced our decision to close and unblind both the Phase 2b trial in AD and the Phase 2a trial in asthma to inform our path forward and support our discussions with the FDA. We may be unable to establish causation of the serious adverse event or satisfactorily address the issues required to resolve the clinical holds in a timely manner or at all and we expect to incur additional expenses in connection with our efforts to resolve the clinical holds, which may be significant. If the FDA does not lift the clinical holds, we may be unable to continue clinical development of zelnecirnon, which would have a material adverse effect on our business, financial position and prospects.

While we have not discovered any adverse side effects of tivumecirnon in healthy subjects that have limited our ability to test tivumecirnon in humans, it is possible that there will be undesirable side effects associated with its use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of these side effects. In such an event, our trials could be suspended or terminated, and the FDA or other regulatory authorities could order us to cease further development, or deny approval, of a drug candidate for any or all targeted indications. Such side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may materially and adversely affect our business and financial condition and impair our ability to generate revenue.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of a drug candidate may only be uncovered when a significantly larger number of patients are exposed to the drug candidate or when patients are exposed for a longer period of time.

If any of our current or potential future drug candidates receive regulatory approval and we or others identify undesirable side effects caused by one of these products, any of the following adverse events could occur, which could result in the loss of significant revenue to us and materially and adversely affect our results of operations and business:

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regulatory authorities may withdraw their approval of the product or seize the product;

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we may be required to recall the product or change the way the product is administered to patients;

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additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;

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we may be subject to fines, injunctions or the imposition of civil or criminal penalties;

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regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

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we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;

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we could be sued and held liable for harm caused to patients;

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the product may become less competitive; and

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our reputation may suffer.

Since our inception, we have used substantial amounts of cash to fund our operations and expect our expenses to increase substantially in the foreseeable future. Developing our drug candidates and conducting clinical trials for the treatment of inflammatory diseases, cancer and any other indications that we may pursue in the future will require substantial amounts of capital. Accordingly, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of and seek marketing approval for, our drug candidates. In addition, if we obtain marketing approval for any of our drug candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we expect to continue to incur costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

As of March 31, 2024 we had $141.6 million in cash and cash equivalents and marketable securities. Based on current business plans, we believe that our current cash and cash equivalents and marketable securities will provide sufficient funds to enable us to meet our obligations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. Our future capital requirements and the period for which we expect our existing resources to support our operations may vary significantly from what we expect. Our monthly spending levels vary based on new and ongoing research and development and other corporate activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our current and potential future drug candidates and the extent to which we may enter into collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies, clinical trials and any approved marketing and commercialization activities. The timing and amount of our operating expenditures will depend largely on:

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the timing and progress of preclinical and clinical development activities;

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the timing and progress of the advancement of our drug discovery and development engine, including our ability to satisfactorily address the issues resulting in the clinical holds in a timely manner or at all;

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the price and pricing structure that we are able to obtain from our third-party contract manufacturers to manufacture our preclinical study and clinical trial materials and supplies;

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the number and scope of preclinical and clinical programs we decide to pursue;

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our ability to maintain our current licenses, collaboration and research and development programs, including the continued agreement of Merck to supply pembrolizumab to us for use in our clinical trials;

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our ability to establish new collaborations;

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the progress of the development efforts of parties with whom we may in the future enter into collaboration and research and development agreements;

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the costs involved in obtaining, maintaining, enforcing and defending patents and other intellectual property rights;

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the cost and timing of regulatory approvals; and

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our efforts to enhance operational systems, secure sufficient laboratory space and hire additional personnel, including personnel to support development of our drug candidates and satisfy our obligations as a public company.

To date, we have primarily financed our operations through the sale of equity securities. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We cannot assure you that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us. While the long-term economic impact of ongoing overseas conflicts and potential future disruptions in access to bank deposits or lending commitments due to bank failures are difficult to assess or predict, each of these events has caused significant disruptions to the global financial markets and contributed to a general global economic slowdown. Furthermore, inflation rates, particularly in the United States and the U.K., have increased to levels not seen in decades. Increased inflation may result in increased operating costs (including labor costs) and may affect our operating budgets. In addition, the U.S. Federal Reserve has raised, and may further raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. Moreover, the failures of Silicon Valley Bank, Signature Bank and First Republic Bank have resulted in broader financial institution liquidity risk and concerns. If the equity and credit markets deteriorate, including as a result of macroeconomic or other global conditions such as inflation, rising interest rates, prospects of a recession, government shutdowns, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. In any event, if the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our financial condition and our ability to pursue our business strategy.

If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs or commercialization efforts. To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our current and potential future drug candidates, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted and the terms of these securities may include liquidation preferences or other rights that adversely affect our and our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

We do not expect to realize revenue from product sales in the foreseeable future, if at all, and unless and until our current and potential future drug candidates are clinically tested, approved for commercialization and successfully marketed.

We may expend our limited resources to pursue a particular drug candidate and fail to capitalize on drug candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we intend to prioritize our efforts on specific research and development programs, including clinical development of zelnecirnon, tivumecirnon or other future drug candidates. As a result, we may forgo or delay pursuit of other opportunities, including with potential future drug candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and drug candidates for specific indications may not yield any commercially viable drug candidates. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through partnership, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate.

We may not be able to enter into collaborations or strategic transactions on acceptable terms, if at all, which could adversely affect our ability to develop and commercialize current and potential future drug candidates, impact our cash position and increase our expenses.

From time to time, we may consider strategic transactions, such as collaborations, acquisitions of companies, asset purchases, joint ventures and out- or in-licensing of drug candidates or technologies. For example, we entered a Collaboration and License Agreement with Hanmi in December 2019, pursuant to which we granted Hanmi the exclusive rights to develop, manufacture and commercialize tivumecirnon in the Hanmi Territory. The competition for partners is intense, and the negotiation process may be time-consuming and complex. If we are not able to enter into collaborations or other strategic transactions, or continue our existing collaboration, we may not have access to necessary capital or expertise to further develop our potential future drug candidates or our drug discovery and development engine. Any such collaboration or other strategic transaction may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. We may acquire additional technologies and assets, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business, but we may not be able to realize the benefit of acquiring such assets. Conversely, any new collaboration that we do enter into may be on terms that are not optimal for us. These transactions would entail numerous operational and financial risks, including:

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exposure to unknown liabilities;

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disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, drug candidates or technologies;

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incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs;

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higher-than-expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges or increased amortization expenses;

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difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business;

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impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership; and

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the inability to retain key employees of any acquired business.

Accordingly, although there can be no assurance that we will undertake or successfully complete any collaborations or other strategic transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks and our business could be materially harmed by such transactions. Conversely, any failure to enter any collaboration or other strategic transaction that would be beneficial to us could delay the development and potential commercialization of our drug candidates and have a negative impact on the competitiveness of any drug candidate that reaches market.

In addition, to the extent that any of our current or future partners were to terminate a collaboration agreement, we may be forced to seek additional partnerships, which may be less favorable to us, or independently develop our current and future drug candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costs and obtaining, maintaining, enforcing and defending intellectual property rights or, in certain instances, abandoning drug candidates altogether, any of which could result in a change to our business plan and materially harm our business, financial condition, results of operations and prospects.

We rely on third-party clinical investigators, CROs, clinical data management organizations (“